Wednesday, July 20, 2016

There's little to be drawn from the Fed minutes. I think the FOMC used the referendum (on the U.K. leaving the EU) as a reason to do nothing. They would prefer doing nothing and they will probably do nothing for a long period of time. 'Lower for longer' is probably the way to consider what the Fed is going to do for quite some long period going forward.There is a lack of resolve on the part of the economy here in the U.S. We're moving forward at a very tepid rate and I think we're stuck here at these low levels of Fed funds for a long period of time, certainly until the end of this year and perhaps into the middle of next year.

Tuesday, July 19, 2016

Take a look at what's happening to cotton. It's a market that nobody has been paying attention to and has been totally left off of everybody's radar. Something is developing technically in the cotton market. Cotton is trading within a very small range between 68 cents and a low of 60 cents. Suddenly, cotton is breaking out to the upside. The term structures are starting to move and the contangos are beginning to narrow. Markets that don't go down on bearish news aren't going down anymore.Any time you have a chance to buy any weakness in the next two or three days, take a look at it. Be a buyer on any one- or two-cent declines.

Monday, July 18, 2016

Are stocks over-done on the upside? Yes, of course and that is stunningly clear from the fact that the CNN Fear & Greed Index finished at 88, a level exceeded only once in the course of the past three years when it touched 93 back in the spring of ’14. However, even then the market continued to run to the upside and it is worth remembering that fact. The market was egregiously over-bought then and it became even more egregiously over-bought in the weeks and months ahead. As Keynes said, “The market can remain irrational far longer than we can remain solvent.” The present “irrationality” may persist and likely shall. It may be ill advised… and very so… to initiate long positions here, but it is still wise to remain long of what one owns in order to participate in the “game” as long as the music is still playing. There will come a time when the music stops; when the reality of the situation created by the world’s leading central banks hits and hits hard and when the game turns ugly and bloody, but that time is not yet upon us. So we are to dance while the band plays; the champagne’s cold; the ladies are beautiful and the men are handsome, for soon enough it will all change… the only question is “When?”:As Lord Keynes reminded us, the market can remain illogical far longer than we can remain solvent, but when we couple Herb Stein’s dictum with that of Keynes we know intuitively that something is going to give; that these closed end fund premiums are doing to collapse and that this will end badly. It’s a given; it will happen!

Wednesday, July 13, 2016

Gold has been on the rise for the past six months, leading to some recent speculation by traders and economists that it may be due for a pullback.We are not "gold bugs" here at The Gartman Letter. We do not believe that Western culture is doomed to fail. We are not of the mindset that the world is coming to some inglorious end; indeed, we are not even certain that a recession is on the near-term horizon.Further still, we don't think the dollar is in any danger of ceasing to be the world's reserve currency. We are convinced that with the confusion caused by the British vote to leave the European Union that the U.S. dollar shall be even more firmly entrenched as the world's reserve currency."Gold is the currency for the ages, having been around for centuries and having always been a metal that civilizations are enamored with." And, we are actually convinced that this is a better world in which we live presently than at any time in man's history; the number of wars is reduced to the fewest in history; the battles are the least bloody; men and women are living longer; diseases are being conquered. It is indeed the best of times.That would usually mean that we are not bullish on gold, but, in fact, we are – and have been for quite a long time.The problem is that we "see" gold as nothing more than a currency as well as some sort of "store of value." We see gold as the same as the dollar, euro, pound, etc. — but with "value" incumbent in it. Gold is the currency for the ages, having been around for centuries and having always been a metal that civilizations are enamored with. As such, and as foreign-currency traders, we tend to view one currency in terms of others; that is, just as the euro is "priced" in terms of the dollar or yen… gold can be and should be "priced" according to how many dollars are needed to buy one ounce of gold, or euros, yen, pounds, etc.In terms of the euro, for example, gold has been in a bull market with higher interim highs and higher interim lows for two and a half years, even though, in dollar terms, it has been rising for only a bit more than six months. Since early 2014, gold has risen 40 percent if you measure it in euros but only 14 percent in dollar terms and 8.4 percent in yen terms. When you average that out, gold has risen about 21 percent relative to the world's three most important currencies since early 2014.Why is this important? It is indicative of the fact that the world's central bankers are all, in unison, increasing the supply of reserves — the supply of money — to their banking systems, ostensibly to strengthen then economies, through the transmission of higher equity prices and through an eventual hoped-for inflation. And not only are theFederal Reserve, European Central Bank and the Bank of Japan acting in this fashion, but so, too, the People's Bank of China, the Reserve Bank of Russia, the central bank of Brazil and most central banks around the world. This is a process that shall not change anytime soon, for all of the world's major central banks are trying to create inflations and/or are at least fighting mightily to defeat deflationary forces that are extant and unwanted.We are bullish, then, of gold relative to most other currencies. We see gold as the most stable of currencies, likely to continue to rise in value relative to the euro, yen, U.S. dollar and, indeed, relative to the ruble, pound, Brazilian real, Indian rupee, et al.If one believes that the monetary authorities around the world will continue to inject reserves into their systems at a heady pace, then ownership of gold in several currency terms makes all the more sense. Indeed, in light of the fact that the Bank of Japan and the ECB are almost certain to embark upon new experiments in quantitative easing, while the U.S. Federal Reserve Bank shall be a good deal more reticent about doing so, owning gold in euro and yen terms is far more fundamentally warranted that owning gold in dollar terms.

Monday, July 11, 2016

Share prices have soared since Friday morning with all ten of the markets comprising our International Index having risen and with 7 of the 10 rising by more than 1%, as represented by the “green” coloring in the price index below, and as 2 of those 7 have risen by more than 2% and with 1 of those ten… the market in Japan… having risen by more than 4%. It is a spectacle of bullish enthusiasm and the markets are “dancing” to TINA’s tune… There Is No Alternative. Money has no place to go these days other than to the equity markets and the global markets are breaking out to the upside. It is really quite stunning.As one or two off the wittier and wiser “Wags” commenting upon how the markets are moving have said, we are witnessing a stunning shift in the fundamental view of how capital is to be allocated: that is, money is moving into equities for the yield and is moving into the bond markets for the capital gains. This is breaking centuries of capital market allocation theory and it is putting that theory upon its head, because for centuries “serious” money went into the bond market for yield and went into the equity markets for capital gains. Now it is wholly and completely otherwise.Perhaps this is a permanent change in investment theory, but perhaps not. Perhaps capital will, for the coming decades, move into equities in search of dividends and yield, and perhaps the central banks have so disturbed, distended and destroyed the bond market that money seeking capital gains will indeed flow there. After all, what money, in its right mind, would seek to move into Spanish debt yielding dramatically lesser interest rates than US government debt? None, in a truly rational world, with the term “rational” being defined as the action of portfolio managers over the course of the past several hundred years, but in a world over-turned by the monetary authorities at the world’s leading central banks perhaps all of the rules of the past are also over-turned.As we have argued, just as in the case of physics where the “laws” as understood are either over-turned or severely bent as temperatures approach “absolute zero,” the “laws” of money management are turned on their heads as interest rates approached zero and are certainly turned on their heads as rates have gone into negative territory.

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